Whirlpool of India Rating ‘Buy’ : One of the best plays on the sector

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Updated: December 1, 2018 2:06:32 AM

We view WHIRLpool as one of the best plays in Indian home appliances, given its assorted product mix aiding growth across cycles, formidable market share, sturdy product pipeline, strong parentage and innate financial strength.

Whirlpool of India Rating ‘Buy’ : One of the best plays on the sector

We view WHIRLpool as one of the best plays in Indian home appliances, given its assorted product mix aiding growth across cycles, formidable market share, sturdy product pipeline, strong parentage and innate financial strength (nil leverage, robust cash flows & return ratios, huge cash pile). Also, the multi-year secular opportunity in appliances, further triggered by the GST rate cut to 18% in Jul 18’, augers well for WHIRL’s long-term prospects. Initiate at Buy.

Recent GST rate cut to boost demand
We believe India offers immense growth potential in appliances given lower penetration (ex-TVs avg. 15%). Further, reduced prices post GST rate cut could bolster volumes. A key trigger to watch out for is volume traction in Q3FY19 (festive season).

Inherent financial strength
WHIRL showcases superior B/S, marked by nil D/E, optimum working cap., strong return ratios and sizeable cash & investments. This cash can be used for
(i) higher dividend pay-out, (ii) inorganic growth, (iii) capex for increasing capacities or (iv) organic growth. We estimate revenue/PAT to see 16/23% CAGR over FY18-21e, with ~80 bps growth in op-margin.

Initiate at Buy
WHIRL currently trades at 32x/27x PE on its FY20/21e EPS — the current PE multiple is 20% lower than its YTD peak. We derive our PT of Rs 1,690 by assigning 33x to Mar21e EPS. The target PE is in-line with WHIRL’s historical 5-year average. We like WHIRL’s business aggression (focus on distribution & product launches), which we argue should accrue to its market share going forward.

Key catalysts: (i) robust volume traction & new launches, (ii) ability to pass on escalating RM, (iii) capacity adds and
(iv) utilisation of cash pile. Key risks: (1) subdued demand, (2) RM headwinds , (3) slowdown in consumer spending, (4) competition and (5) low free-float & liquidity.

 

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